Challenges and Opportunities in Supply Chain Environmental Sustainability Disclosure:

Transcription

1 2013 Challenges and Opportunities in Supply Chain Environmental Sustainability Disclosure: Navigating the Request-Response Process Between Stakeholders and Suppliers Full Report Publication Date: May 31, 2013 Authors: Lin Jiang, Jessica Lab, Phillip Lai, Yifei Qian, Peter Rau Produced in conjunction with the Duke University Nicholas School of the Environment

2 Abstract Environmental sustainability is growing in importance to organizations in many different sectors. The need to account for suppliers environmental performance through sustainability surveys is taking up a greater portion of the daily job responsibilities of sustainability professionals. This report incorporates insights from interviews with 15 organizations across multiple industries that address the current challenges and opportunities confronting those in the sustainability supply chain disclosure process. In addition, we analyze31 collected sustainability surveys based on four survey- level characteristics (survey level, type, purpose and industry) and on four question- level characteristics (question format, nature, topic and subtopic). The resulting data show that, while it would be difficult to establish a single common survey or set of questions, opportunities exist for the standardization of question wording and format, which would constitute a step towards reducing the amount of time that organizations spend on responding to surveys. This report provides a roadmap for taking this project forward based on these results, centering on the creation of a web- based platform containing a repository of standard- worded and formatted questions covering a broad range of environmental topics. Using this platform, organizations could select questions to send to their suppliers based on their own preferences, while suppliers could reduce the amount of time spent on responding to survey requests. This establishes a path forward in supply chain sustainability disclosure, with the potential to reduce systemic inefficiencies and redundancies in this process. 1

3 Acknowledgements This report was developed and conducted in close partnership with the Association of Climate Change Officers (ACCO). The Duke University team would like to thank Executive Director Daniel Kreeger, ACCO Board Members and the project advisory committee for their contributions and guidance. The Duke team would also like to thank all those who participated in interviews, provided relevant materials for and feedback on the report, or otherwise participated in this process. Finally, the project team would like to thank our academic advisors, Dean Bill Chameides of Duke s Nicholas School of the Environment and Dr. Daniel Vermeer of Duke s Fuqua School of Business. About ACCO The Association of Climate Change Officers (ACCO) is a 501(c)(3) non- profit membership organization that defines, develops and supports the functions, resources and communities necessary for effective organizational leadership in addressing climate- related risks and opportunities. An industry leader in producing education and training events for climate change and sustainability professionals, ACCO s members include a broad range of organizations and executives in industry, government, academia and non- profit organizations worldwide. For more information about ACCO, please visit K Street NW Washington, DC Copyright 2013 Association of Climate Change Officers. All rights reserved. 2

4 Table of Contents Abstract... 1 Acknowledgements... 2 Tables and Figures... 5 Glossary and List of Abbreviations... 6 Executive Summary... 7 Chapter 1: Introduction Background Research Questions Review of Existing Harmonization Efforts Chapter 2: Methodology Design of Interview Questions Interview Analysis Approach Supply Chain Survey Sampling and Analysis Survey Categorization Structure Chapter 3: Results Interviews Roles and Responsibilities of Interviewees Forces Driving the Sustainability Surveys Three Main Components in the Surveying Process Challenges and Opportunities in Streamlining the Survey Process Harmonization Opportunities Surveys Most common topics and subtopics asked across all of the surveys? Within an industry, are there differences between the questions being asked by individual companies and their industry- specific aggregate surveys? Are there differences in questions being asked between industries? How do companies intend to use the survey responses?

5 3.2.5 How does the purpose of the survey correspond or relate to the way the questions are being asked? Chapter 4: Recommendations and Next Steps Recommendations Next Steps Chapter 5: Conclusion References Appendices Appendix A Summary of Existing Supply Chain Disclosure and Reporting Efforts Appendix B Supply Chain Disclosure Interview Questions Appendix C Summary of Survey/Question Categories and definitions C. 1. Survey Level Analysis C. 2. Question Format C. 3. Question Nature C. 4. Topics and Subtopics Appendix D Additional Tables and Graphs D. 1. Subtopic Coverage by All Surveys D. 2. Telecommunications Industry Snapshot D. 3. Pharmaceutical Industry Snapshot Appendix E List of Example Questions Covering the Common Question Natures for Each Topic/Subtopic Appendix F Model Development Guide Appendix G Project Feedback on Next Steps

6 Tables and Figures Table 1. Table 2. Table 3. Table 4. Table 5. Table 6. Table 7. Table 8. Table 9. Summary of Organizations Interviewed Summary of Surveys Collected and Analyzed Comparison of Surveys in Telecommunication Industry Comparison of Surveys in Pharmaceutical Industry Comparison of Aggregate Surveys Across Industries Purposes of Industry- Aggregate Surveys Consideration of Advantages and Disadvantages of Surveying Models Courses of ActionSummary Model Development Guide Snapshot Figure 1. Figure 2. Figure 3. Figure 4. Figure 5. Figure 6. Figure 7. Figure 8. Percent of Question Coverage by ESG Topic Coverage All Surveys Subtopic Coverage Under Emissions, Effluents and Waste Subtopics Across All Surveys Comparison of Emission, Effluence and Waste Subtopic Breakdown Across Industries Percentages of Different Questionnaires Purposes Comparison of Questionnaire Purposes Between Aggregate Surveys and Company- specific Surveys Question Formats by Survey Purposes Process Flow of Platform Model

7 Glossary and List of Abbreviations Abbreviations ACCO CDP CEQ CSR EHS ESG GRI KPI NGO RFP SEC XBRL The Association of Climate Change Officers Carbon Disclosure Project Council on Environmental Quality Corporate Social Responsibility Environmental Health and Safety Environmental, Social, and Governance Global Reporting Initiative Key Performance Indicators Nongovernmental Organization Request for Proposals Securities and Exchange Commission extensible Business Reporting Language 6

8 Executive Summary Environmental sustainability has become an important topic for organizations of all types in recent years. There has been a push not only to evaluate the sustainability performance within an organization s own operations, but also to evaluate the impacts of the organization s supply chain. This push has resulted in a proliferation of sustainability supply chain surveys and organizations have had to dedicate an increasing amount of time to respond to them. However, according to a Carbon Disclosure Project (CDP) survey, 38%of suppliers, whose purchasing companies participate in the CDP Supply Chain program, disclosed what they were doing to address their climate change impacts. Twenty- seven percent of those suppliers who disclosed stated that they were making an effort to lower carbon emissions and energy use, amounting to about 10% of the total suppliers who received the CDP survey. On the other hand, 69% of their purchasing companies indicated they that addressed their carbon emissions and energy use. While the scope of the survey focused on climate- related efforts, such activity typically takes place within a broader environmental sustainability strategy of an organization. This points to a large gap between the sustainability measures taken by large corporations with global supply chains and those of the thousands of suppliers that make up those logistics networks. The Association of Climate Change Officers (ACCO) has convened a working group of sustainability professionals and engaged a student team from the Nicholas School of the Environment at Duke University to identify opportunities to streamline and harmonize the sustainability supply chain surveying process, with the hope that reducing the amount of time organizations spend on responding to surveys will, in turn, allow them to spend more time on internal sustainability measures and implementation efforts. This project focuses on identifying opportunities related to the request and disclosure of supplier data related to environmental topics; social and governance topics are outside of the scope of this project. Through this project, we have identified several on- going efforts by various organizations to develop and encourage the wide- spread use of survey templates and platforms (see Appendix A). However these efforts focus on creating a standard set of questions that organizations should ask their suppliers. As an alternative approach, we recommend that a web- based repository of environmental sustainability questions be created where survey issuers could pick and choose the 7

9 questions they want to send to their suppliers, and suppliers could respond to each question that they receive from their customers and have the responses saved in the repository, as illustrated in the following process flow diagram: Organization 1 1 Select questions and sends survey to suppliers 2 Receive all questions from Org 1 Organization 2 4 Receives completed survey from supplier A 5 Select questions and sends survey to suppliers 8 Receives completed survey from supplier A Platform w/ question repository 3 Respond to Org 1, answers saved in repository 6 Receive only new questions not asked before 7 Respond to new questions from Org 2, answers saved in repository Supplier A As suppliers receive surveys from their customers, questions they have already responded to in a prior customer survey will be automatically filled with their saved response and they would only have to enter responses to questions if they are receiving that question for the first time, if there are changes to their business practices, or if the question requires a customer- specific response (e.g. activity- based allocation). This type of repository system would standardize the wording and format of questions, allow survey issuers to maintain the flexibility to customize their surveys to focus on the topics that are most important to their organization, and reduce the burden for survey responders. From an implementation perspective, we recommend that the development of this platform be broken down into two phases. The first phase should focus on creating and promoting the use of the questions repository itself, while the second phase would focus on creating a database to store survey responses, which would then enable the development of other value- added functionality, such as reporting, data analytics, and performance benchmarking. This recommendation was developed from insights gained from 15 interviews with sustainability professionals on the current challenges and opportunities they confront in the supply chain disclosure process, and a thorough analysis of 31 environmental supply chain surveys. The survey 8

10 analysis identified commonalities and differences regarding question topics, question nature, and question format. The analysis also looked at the stated purpose of the surveys (e.g. were they created by individual companies, industry groups or nongovernmental organizations, etc.). From the interviews, we found that individuals tasked with responding to surveys expressed a desire for some level of standardization that would reduce the burden of responding to survey requests, while individuals tasked with issuing surveys tend to want the flexibility to focus on the areas and topics that are material to their organizations. Furthermore, it was clear through interviews with individuals responsible for making decisions on the survey data that organizations are at various stages in their ability to act on the results. Some organizations are collecting data in an attempt to start dialogues with their suppliers, while others have incorporated sustainability metrics into their supplier evaluation and selection processes. The analysis of the collected surveys highlighted differences in topic coverage not only between industries, but also among companies in the same industry. As a result, we conclude that it would be difficult to encourage all organizations to use a single common survey or set of questions. However, our analysis found that the yes/no question format and its variants are the most common question format, comprising of at least 60% of the questions asked across all survey purposes. This highlights an opportunity to focus on standardizing the wording and format of the questions that are being asked. Finally, this report summarizes a set of considerations for embarking on the development of a questions repository platform, and provides a model development guideline and a preliminary list of questions that could serve as a starting point for the creation of the repository. 9

11 Chapter 1: Introduction 1.1 Background Many organizations now include environmental sustainability, especially throughout their supply chains, as a consideration in evaluating their overall performance. It is increasingly seen as having a meaningful and measurable impact on a company s profitability (Business Green, 2013). For example, a recent CDP survey found that 70% of responding companies believe that climate change can have a significant impact on their revenues. In order to better understand climate- related risk and business opportunities, many companies now ask their suppliers for greenhouse gas emissions data. However, obtaining relevant data from suppliers is a difficult task even when the purchasing companies recognize the importance of environmental concerns. As part of the CDP survey, information requests were sent out to the 52 member companies of CDP s Supply Chain Initiative and over 6,000 of their suppliers across the globe. Thirty- eight percent of these suppliers responded with information on their carbon emissions and their company s strategies to address the effects of climate change on their operations. Business leaders who recognize that climate change is a relevant issue are concerned about the extent to which their suppliers are taking actions to prepare for potential climate disruptions. Of the 38% who responded to the CDP survey, 27% of those suppliers stated that they were making an effort to lower carbon emissions and energy use, while 69% of their purchasing companies indicated they did so (BusinessGreen, 2013).This points to a large gap between the climate- related measures taken by large corporations with global supply chains and those of the thousands of suppliers that make up those logistics networks. Concurrently, the rise of social media and digital communication has placed more pressure on corporations to be transparent in their operations. Large purchasing companies, such as Walmart or Nike, are sometimes held responsible for the environmental performance of companies upstream in their supply chains. Due to this, business leaders in operations and supply chain management have experienced increased integration of environmental issues in their operations and purchasing decisions (Seuring, 2008). 10

12 Central to sustainable supply chain management is the disclosure of relevant data that allows companies to assess the environmental performance of their suppliers, engage with them to work towards improvements and make purchasing decisions that mitigate climate- related risks and create opportunities for growth. As the old adage goes, what gets measured gets managed. Gary Hanifan, the global sustainability lead for supply chain at Accenture, which assisted CDP in its supply chain report, emphasizes the importance of transparency. He holds that those who are most transparent about their climate change risks are more likely to achieve the greatest emissions reductions, referencing the $13.7 billion in savings reported by suppliers with programs to reduce GHG emissions (BusinessGreen, 2013). While the significance of supply chain disclosure has caused large companies with global supply networks to take the lead in requesting and providing relevant information on environmental performance, the process is seen as cumbersome and inefficient, constituting a point of frustration for sustainability and supply chain professionals. A 2012 GreenBiz survey of surveys found that companies have become increasingly exasperated at the amount of surveys they receive from independent groups (such as NGOs) and customers, with little to no indication of how the information will be used. Sustainability professionals working in corporations are finding themselves with a difficult situation: they must respond to their customers and want NGOs to accurately report on their sustainability performance, but the methodologies of the information requests are inconsistent, even though much of the information requested is similar across surveys. The consensus among those who responded to the GreenBiz survey: There are too many surveys, they need to be standardized, and there s a frustrating lack of transparency in the different methodologies (GreenBiz, 2013). This is the problem that motivates our study. Sustainability professionals see greater standardization within the sustainability supply chain disclosure process as both an urgent need and an achievable goal. The client for our project, ACCO, a research and convening organization for environmental sustainability professionals, has been a part of collaborative efforts to address this issue in recent years. In the spring of 2012, ACCO engaged the Nicholas School of the Environment at Duke University to address this problem. To provide guidance in this process, ACCO established an advisory committee for our team, made up of experts from the private, public and nonprofit 11

13 sectors. This report is the product of the past year s work. In it we explore opportunities and challenges for greater consistency within the sustainability supply chain disclosure process. 1.2 Research Questions The goal of this project is to identify the needs of stakeholders that are driving the proliferation of environmental sustainability supply chain surveys and to develop a roadmap to navigate the current state of environmental supply chain disclosure process. To do so, we have collected and analyzed environmental sustainability supply chain surveys to identify commonalities and differences between both survey content and question structure. In essence, our purpose is to determine what information organizations are trying to obtain from suppliers and in what way. There may be some areas that have a certain degree of consistency and other areas in which there is little common ground. By analyzing the questions quantitatively, our goal is to gain insights into the following research questions: What are the most common topics and subtopics asked across all of the surveys? Within an industry, are there differences between the questions being asked by individual companies and their industry- specific aggregate surveys? Are there differences in questions being asked between industries? How do companies intend to use the survey responses? How does the purpose of the survey correspond or relate to the way the questions are being asked? In addition to the detailed analysis of survey questions, this report outlines the broader, systemic factors of the environmental supply chain disclosure process that are key to the success of any effort to streamline and harmonize the current process. By harmonize, we mean we mean reducing the number of times companies have to ask for and provide information. We interviewed a number of sustainability professionals currently involved in the environmental supply chain disclosure process and conducted a literature review of current harmonization efforts, with the hope of answering the following research questions: What are the challenges and inefficiencies in the current disclosure process? Are there opportunities for streamlining and harmonizing the process? 12

14 Are there current efforts by other groups to address this issue? Who are the stakeholders that should be involved in the effort to harmonize the process? What type of platform or delivery mechanism should be used to manage the survey issuance and response process? What are some of the features and functionality of a platform that would attract companies to use it for their environmental supply chain disclosure needs? What are other key considerations that will determine the viability of such a platform (e.g. data security and confidentiality, funding, administration)? 1.3 Review of Existing Harmonization Efforts The complexity and variability of environmental sustainability information requests has resulted in greater cost and commitment of other resources in evaluating a company s supply chain. Not surprisingly, many industry trade groups and other organizations have attempted to address this issue by developing and encouraging the use of survey templates and platforms to evaluate suppliers sustainability performance. It was critical for us to understand existing efforts to address this issue, which have been categorized in Appendix A. In addition to cataloging existing supply chain sustainability disclosure and reporting efforts, we also wanted to look at broader sustainability information reporting frameworks and platforms that have gained widespread acceptance, in order to understand the key factors for their success: Carbon Disclosure Project (CDP) - CDP s success initiated from support from institutional investors and big customers like Walmart and Bank of America. CDP began by engaging companies with the largest market capitalization because these large companies need to respond to their investors. However, the investor interest cannot efficiently drive suppliers through the value chains to respond because the suppliers are usually smaller companies. The CDP Supply Chain program was developed to engage the next tier of smaller companies. For example, Walmart has invited its supply chain partners to report to CDP as part of its Supplier Sustainability Assessment. Requests from customers like Walmart and Bank of America, which usually represent a significant portion of suppliers revenue, is often the key reason that suppliers report to CDP (Baier, 2011). 13

15 The Sustainability Consortium (TSC) - The Sustainability Consortium was launched in TSC is focused on evaluating the life cycle impacts of products, and can at least partially attribute their initial success through the support and involvement of Walmart. Sustainability Accounting Standards Board (SASB) - SASB aims to develop standards for 88 industries in 10sectors suitable for use in providing decision useful information in the Securities and Exchange Commission (SEC) Forms 10- K and 20- F by 2015 (SASB, 2013). SASA is addressing the need to standardize sustainability metrics in a way that will ultimately allow stakeholders to evaluate companies sustainability performance along with financial performance. SASB works with publicly listed corporations and their investors to develop standards and information that are useful to investors, companies, and other stakeholders (Makower, 2012). SASB developed a Materiality Map that produces shortlist of material industry- specific issues and relevant standardized sustainability metrics are proposed. These standards are intended to be integrated into financial filings; therefore, the metrics are designed into an auditable way (SASB, 2013). Example of these metrics from the website includes, ratio of cost ($ per gigajoule) of non- renewable energy to renewable energy, water intensity (m 3 of production water per ton of product) in water stressed regions and description of risks and opportunities associated with own greenhouse gas emissions (SASB, 2013). Global Reporting Initiatives (GRI) - GRI is a recognized framework for sustainability reporting and attributes its success to its inclusive multi- stakeholder approach. GRI also leveraged its training partners to reach a large number of organizations (Cohen, 2011). Global Initiative for Sustainability Ratings (GISR) GISR was launched in June 2011 by Ceres and Tellus Institute. GISR s mission is to create a world class corporate sustainability ratings standard as an instrument for transforming the definition of value and value creation by business in the 21st century in a way that aligns with the national and global sustainability agenda. GISR aims to address the challenge of request of duplicative information, survey fatigue and inconsistency and discrepancy in rating outcomes (GISR, 2012). The rating standard is developed by the collaboration of partners like GRI and SASB. The standard will have two components: principles and performance. Principles are the foundations for the development of the ratings such as materiality, transparency and comprehensiveness. The performance component is a mix of indicators 14

16 of an organization s economic, social, environment and governance activities, as well as current best practices (GISR, 2012). Dow Jones Sustainability Index (DJSI)- DJSI uses RobecoSAM s Corporate Sustainability Assessment (CSA) methodology.djsi guides companies to consider key sustainability issues within their supply chain (Climate Leadership Conference, 2013). The Supply Chain Management section of the DJSI CSA questionnaire asks questions about environmental risks of companies suppliers, environmental standards, policies, and codes of conducts for suppliers, capacity building initiatives and incentives for suppliers, and the integration of environmental objectives in supply chain management strategy. It also asks for key performance indicators (KPIs)that companies use to monitor tier 1 suppliers, which include the following: o o o o Percentage of supplier contracts including environmental, social, and governance (ESG) contract clauses; Percentage of suppliers with ISO certification; GHG emissions; and Suppliers water use. By exploring current supply chain sustainability harmonization efforts and the factors of success for widely- adopted sustainability information frameworks, we were able to more deeply understand the context motivating ACCO s work as we began the analysis for this project. 15

17 Chapter 2: Methodology 2.1 Design of Interview Questions In order to better understand the current situation and to lay out the broader context around the challenges companies face from the proliferation of sustainable supply chain surveys, we worked with ACCO to schedule 30- minute interviews with sustainability professionals at various organizations. We targeted individuals with different perspectives on this process, including individuals involved in creating and issuing surveys to their suppliers, individuals involved in making decisions based on the survey responses, and finally, those responsible for responding to surveys received from their customers. Prior to conducting the interviews, we developed a list of questions that included both general questions that were asked of each interviewee, as well as a specific set of questions for each of the different perspectives. On September 29, 2012, our team attended the GreenGov Symposium, an event co- presented by ACCO and the White House Council on Environmental Quality (CEQ), which convened leaders from the government, businesses, nongovernmental organizations and universities to identify opportunities for the Federal Government to implement further sustainability practices in its operations. We presented our questions during a workshop attended by over 25 sustainability professionals and solicited feedback to further refine our questions, which ultimately resulted in the final list of questions, as shown in Appendix B. From October through December 2012, we interviewed representatives from 15 organizations, selected by our client, covering the various perspectives of the sustainability supply chain survey process, as listed in Table 1. We then recorded and transcribed all of the interviews for further analysis. Table 1. Summary of Organizations Interviewed Perspectives Covered Companies Responder Issuer Decision Maker Applied Materials X X X Bayer X X Best Buy X X X Coca- Cola X X X 16

18 Perspectives Covered Companies Responder Issuer Decision Maker Dell X X X Federal Government X X Ford X X X Herman Miller X X X Johnson Controls X X Kaiser Permanente X X X Microsoft X X Northrop Grumman X X X SAP X X X SAIC X Sprint X X X 2.2 Interview Analysis Approach Since our objective for conducting interviews was to gain a better understanding of the context behind the proliferation problem of sustainability surveys, we adopted a qualitative approach to organize the information, in hope of generating a broad picture that illustrates the current situation of how companies deal with supply chain surveys. We used Nvivo software to code and analyze the interview transcripts. 2.3 Supply Chain Survey Sampling and Analysis We collected surveys in partnership with ACCO in parallel with the interview process that occurred during fall Surveys were initially targeted to get broad coverage across the Industry Groups listed in the Global Industry Classification Standards (CDP, 2012). The advisory committee also offered input on the inclusion of surveys they felt were relevant to include in the analysis. Surveys were acquired via direct communication by ACCO and our team, as well as by general internet searching. Overall, we obtained 23 company- specific surveys from 12 industries, and eight aggregate surveys. Table 2 shows the sectors and number of surveys per sector. Table 2.Summary of Surveys Collected and Analyzed Sector Count Aggregates 8 Aerospace 1 Automobiles and Components 3 17

19 Sector Consumer Goods Energy Food Beverage Healthcare/Pharmaceuticals IT/Telecomm Materials Miscellaneous Municipal Retailing Universities Total Count Once we received the surveys, we entered each question into an Excel database. General company information and demographics requested in the survey were not entered. To account for the varying number of questions in each survey, we utilized a weighting method so that surveys with a high volume of questions did not skew the analysis. Each survey had a total survey weighting equal to one. Therefore, each question was given a weighted value equal to one divided by the number of questions in that survey. For example, each question in a 10- question survey was given a weighted value of We then used the weighted value to evaluate the frequency of question types and coverage. In some instances we were only able to receive one survey from one company within an industry. Therefore, we were not able to draw conclusions for specific industries based on company- specific surveys. However, the exceptions were the telecommunications and pharmaceutical industries. We were able to collect a sample of company specific surveys for those industries in which the companies represented a high percentage of market share Survey Categorization Structure In order to methodically analyze the surveys, we categorized the surveys by both survey- level and question- level characteristics. For the survey- level analysis, we categorized each survey according to its 1) Purpose/intent (e.g. rate/score a supplier or state a dialogue with a supplier) 2) Survey type (company- specific or aggregate) 18

20 3) Survey level (facility, organization, or product) 4) Industry For the question- level analysis, we categorized each question by the question 1) Format (e.g. Open- ended, Yes/No, Multiple Choice) 2) Nature (This refers to the particular aspect of a topic or subtopic. For the subtopic of GHG emissions, for example a question nature could be Tracking and Measuring, Usage/Output, or Reporting/Disclosure. ) 3) Topic (This refers to broader environmental categories, such as Emissions, Effluents, and Waste ) 4) Subtopic (This refers to more specific categories with topics, such as Hazardous Waste or Water discharge ) Survey topics and subtopics are, for the most part, aligned to the environmental performance indicators in the Global Reporting Initiative draft G4 Reporting Guidelines (GRI, 2013). We chose the GRI Reporting Guideline as a framework due to input from the advisory committee. However, there were some specific subtopics, such as conflict minerals and renewable energy, which are not explicitly identified as a performance indicator in G4, which we felt were valuable to include as well. Appendix C shows the complete survey categorization structure. We categorized survey questions by nature, topic, and subtopic so that the analysis could be flexible in comparing these different categories and many questions could be answered from the analysis. We designated questions that asked about two different subtopics in the same question as duplicates to avoid double- counting in our analysis. After the categorization of questions was complete, we cross- checked how questions were categorized according to nature, format, topic and subtopic. This helped ensure that categorizations were accurate and consistent across all surveys. Based on input from ACCO and the advisory committee, we focused the scope of the study to only include environmental- related topics. Therefore, we eliminated all questions with a Social topic from further analysis. We only analyzed Governance topic questions if the question specifically asked about governance relating to environmental matters. Before removing these questions from 19

21 the analysis, Social and Governance topics made up 36% and 10% of total questions, respectively (see Figure 1). This high percentage of social questions shows that even though social topics are not in the scope of our analysis, they are still an aspect of sustainability that organizations take into consideration. Figure 1.Percent of Question Coverage by ESG 20

22 Chapter 3: Results 3.1 Interviews Roles and Responsibilities of Interviewees ACCO selected the sustainability professionals we interviewed. The fact that they resided in different functional departments and that they served roles at different experience levels confirmed that sustainability was a cross- functional effort at companies. Some interviewees resided in the corporate social responsibility (CSR) or sustainability office. Others, which were the majority, worked in more traditional company divisions such as marketing, procurement, sourcing, environmental health and safety (EHS) or other corporate service departments. Consequently, they covered a wide range of routine job responsibilities including, but not limited to, sustainability, CSR, procurement support, carbon management, climate protection, community engagement, safety, and environmental design. One research question we aimed to address was whether our interviewees viewed sustainability surveys as a major responsibility of their position. The answers were evenly divided between yes and no. Supply chain surveys may involve collaboration from various departments to fill in the information, but full- time staff members that specialized in managing surveys usually numbered in the single- digits for an individual company. The team that managed these surveys could be either a specialized working group in sustainability, or a team from corporate affairs or customer relations. About half of the interviewees did not consider the survey process to be a major responsibility for them at the time being interviewed, but they believed that it was an important one and its significance had been increasing. The time spent on those surveys first depended on their size and source. Usually, people spent more time on large annual surveys, such as the CDP Supply Chain survey. CDP was frequently mentioned as a time- intensive survey to complete. Whether a company had established a standard process for sending out and completing surveys determined the efficiency of the process as well. For some companies, sustainability surveys were relatively new, requiring more time to figure out how to set up a standard procedure, which may include where to collect data, and how to validate and analyze the data. 21

23 3.1.2 Forces Driving the Sustainability Surveys Through our interviews, we found that companies conducted sustainability surveys for various reasons. Some of them were proactive driving forces, such as the endeavor to become sustainability leaders in the industry, identify GHG reduction opportunities or take active management of supply chain risks. Other forces were passive, for example, the pure pressure from stakeholders. Generally, the drivers behind issuing the sustainability questionnaires were toward proactive side. A company could have a combination of multiple motivations to conduct the supply chain surveys, and they were not mutually exclusive. This section summarized the key driving forces behind issuing these surveys. Evaluating suppliers sustainability Most sustainability professionals, eleven out of fifteen, cited evaluating suppliers sustainability as a force driving sustainability surveys. Sustainability had become a consideration for selecting qualified suppliers. Even if it was not a strict criterion to rule out suppliers, many interviewed companies indicated they would not just consider low price when choosing suppliers, but would be more willing to do business with socially and environmentally responsible companies. They issued supply chain surveys to flag situations that require additional attention and management. Some more demanding companies also assessed whether their suppliers had met their best practice expectations. Some form of a supplier sustainability evaluation process was very common across industries among companies we interviewed. Even though some interviewed companies did not issue formal sustainability surveys, they may have integrated sustainability questions into their request- for- proposal (RFP) processes, which could influence those companies purchasing decisions. Environmental impact reduction opportunities Six out of the fifteen sustainability professionals interviewed cited reduction opportunities. Surveys could be utilized to identify GHG emission or other environmental impact reduction opportunities in the supply chain, especially for those companies who began to manage their scope 3 emissions or those who would like to establish leadership in the climate change and sustainability areas. Some may have even issued a separate survey focusing on GHG emissions. It was also common for those companies to set goals and strategies to collaborate on GHG or other 22

24 environmental footprint reductions with their suppliers, where more training and engagement was likely to be involved. Risk management Five out of the fifteen sustainability professionals interviewed cited risk management as a key force driving sustainability surveys. There were many risks that a company might care about in its supply chain. For example, from a climate viewpoint, the CDP supply chain program could help identify vulnerability of a commodity, including scarcities, continuing impacts from natural disasters or climate changes, and price volatilities. Supplier risk management entailed gathering and analyzing the risk ranking of the supply base, determining the high- risk suppliers, and then engaging them to drive improvements. EcoVadis had a well- regarded risk algorithm, based on supplier category, material groups, country, supplier segmentation (e.g. strategic, key, base suppliers). The software could generate a list of high- risk suppliers given the inputs of suppliers information. Commodity risk was analyzed for the company s marketable products or services. Compliance Compliance was cited by four of the fifteen sustainability professionals interviewed. Companies sent out surveys to assess whether their suppliers used restricted and prohibited substances in the products, as well as compliance with laws and regulations. Leadership in sustainability Two out of the fifteen sustainability professionals interviewed cited leadership in sustainability as a key force. For example, they sent out sustainability surveys because it fitted into their goal of taking a sustainability leadership position in their industry. They integrated sustainable business practices into their core strategic values and worked with their suppliers to fill out the surveys to give them credit for what they do. They also developed a global scorecard for their suppliers, in which sustainability had a 10% weighting. Stakeholder pressure Finally, the surveys were issued due to the pressure of (the) sustainability trend, as two out of the fifteen sustainability professionals suggested. The pressures could come from all types of stakeholders, including capital markets, regulatory administrations, customers and employees. Facing this pressure, more and more companies may consider integrating sustainability into their overall business practices. 23

25 3.1.3 Three Main Components in the Surveying Process The three main components in the request- response process of sustainability surveys consist of issuing, responding and decision- making Issuing This section discussed the process of how sustainability surveys were issued to suppliers. It described the criteria for selecting to which suppliers the surveys were issued to, the topics the surveys addressed, the percentage of suppliers surveys were issued to, and how survey responses were collected from suppliers. Criteria of selecting suppliers - Among the companies we interviewed, only one required all of its suppliers to complete its sustainability survey. Due to time and budget constraints, most companies only issued surveys to a certain percentage of their suppliers. Sometimes organization that issued aggregate surveys had a coverage requirement. For example, the Electronic Industry Citizen Coalition (EICC) required the questionnaires to be extended to 80% of Tier 1 suppliers. When companies decided which suppliers will receive surveys, they considered one or more of the following areas: the company s business size, and the strategic importance with the supplier, and the risk or environmental impact associated with the supplier. The risk factor was usually prioritized over other considerations. Survey topics - Surveys generated by different companies or organizations focused on different topics and are of varying length. Some companies indicated that when they developed their own surveys, although they would refer to GRI or other aggregate surveys, they would not include everything from those aggregates and focus more on actionable questions. Data collection from suppliers - There were two major data collection approaches: Excel spreadsheets or online portals. Many companies still used Excel- based surveys at the moment, but some of our interviewees expressed interest in using an online- based portal, so that responses from suppliers could be assembled less manually. 24

26 Case Study: Initiating a Supply Chain Sustainability Program When initiating a supply chain sustainability engagement program, an organization should develop a clear vision, communicate expectations to their suppliers, and implement the program in manageable phases. Develop a clear vision For one large technology manufacturing company, with hundreds of suppliers, this meant identifying the three main pillars of its program: compliance with legal requirements, meeting EICC membership requirements, and operationalizing sustainable business practices. Communicate expectations To communicate the program to their suppliers, the engagement model included a personal letter from the Chief Operating Officer outlining the expectations and timelines of the sustainability program. It also involved webinars and one- on- one meetings with the top 80% of suppliers by spend, which included representatives from both the procurement and sustainability teams on both sides. This robust engagement model ensures that suppliers understand the purpose of the program and what is expected of them. Implement the program in manageable phases Internally, the sustainability team has identified three deliverables for the initial phase of the program. o Phase One: Gather an initial set of data from their suppliers. o Phase Two: Identify all of the tools and systems that will be necessary to operationalize the data reporting requirements moving forward. o Phase Three: Finalize the audit protocols, with the aim to integrate the sustainability- focused audit objectives into existing supplier audit procedures. Future phases of this program include integrating sustainability indicators into the company s traditional supplier risk management program. However, the focus now is on developing the infrastructure and operational processes for data collection, which is a necessary first step and foundation for the future phases of the supply chain sustainability engagement program Responding In the last section, we discussed how companies operate as survey issuers. At the same time, however, they may receive surveys from various stakeholders. This section focused on the survey process from the responding perspective, and discussed the types of surveys being received, how the company chooses which surveys they will respond to, and the effort spent on responding to surveys. Types of surveys that companies receive The questionnaires companies have received could be grouped into the following categories: o CDP Supply Chain Survey: Most frequently mentioned survey from the interviews. 25

27 o o o o Third- party reporting platforms: Used to convey corporate sustainability information to investors and other stakeholders. Examples include EcoVadis, SEDEX, and E- Task. Ranking agencies: Dow Jones Sustainability Index, Newsweek Green Rankings, Bloomberg CREX, SustainAbility, Sustainable Asset Management, and Maple Crossed Climate Innovation Indexes. Companies may receive a different combination of questionnaires from these issuing organizations. Industrial associations: Electronics Industry Citizenship Coalition, GreenPeace Guide to Green Electronics, and Sustainable Apparel Coalition. Other stakeholders: customers, government agencies, NGOs, and investors. Responding criteria Based on the responses of our interviewees, almost no company responded to all of the surveys that they had received. Usually they responded on a selective basis, and the percentage of responses may vary greatly across companies. Surveys from customers were generally prioritized because they represented companies revenue streams. Some interviewees indicated that they responded to all questionnaires from customers, and they may consider it as a valuable service to their companies sales team. Others may choose to respond based on the size and importance of their customers. Some Companies handled surveys from rating agencies seriously on a selective basis. Companies may respond to NGO surveys at a lower rate than others, based on the reputation and mission of the NGO. Finally, besides the selection criteria based on issuing organizations, particular characteristics of the surveys may affect a company's decision on whether to respond. The less complex a survey, and the easier for a company to gather the data, the greater the likelihood a company would respond. Effort spent on responding The time spent on a single survey can vary from minutes to days to weeks, depending on the varying complexity of surveys. The time and effort involved in the responding process consisted of data collection, writing responses (essay questions may take more time to answer), substantiation with case studies and links to documents, and clarifying responses. As an example of one end of the spectrum, one interviewee indicated that more than 20 man- hours per week for several weeks were spent responding to the CDP survey. 26

28 Decision Making Previous sections discussed the survey process from both the issuing and the responding perspective, but companies also integrated the information acquired through the surveys into the decision- making process. The worst scenario, however, was that companies issued surveys just for the sake of checking the box, without integrating the responses into their decision- making process. One interviewee did admit to seeing no value of completing those surveys. Nonetheless, most of the interviewees saw some value to the surveys as a complement to supply chain management. One value was risk management, which had already been discussed in the previous sections. Some companies had developed a scorecard to evaluate their suppliers and compare their sustainability performance more easily against one another. In these scorecards sustainability may account for a certain percentage of the score, alongside other criteria such as product quality, on- time delivery and financial reliability. If there was a gap in sustainability practices between suppliers, the company may leverage its purchasing power to pressure lower performers to improve. None of our interviewees, however, indicated they would rule out a supplier due to their low score on sustainability. The purpose of conducting surveys or developing a scorecard was more to understand risks and engage suppliers than to weed them out. Few interviewees mentioned how they currently incorporate the survey information into their core business strategies and corporate DNA. This was a more complicated area to explore, but also a valuable one. However, some companies have shown that progress can be made in this area. 27